PM Pedro Passos Coelho Declares Financial Crisis as Portuguese Constitutional Court Cuts Down on 2013 Budget

Prime Minister Pedro Passos Coelho declared that Portugal is currently experiencing a national emergency after the Constitutional Court made deep cuts amounting to more than a billion euros. Coelho insisted that these were necessary to fulfill bailout terms. To avoid another Eurozone bailout, the Prime Minister has revealed that spending cuts on certain budget areas is inevitable. After the government’s budget had been dramatically cut by a court ruling, cuts will be made on education, health, public enterprises, and social security.

Portugal received an international bailout from the creditors and the IMF (International Monetary Fund) in the second quarter of 2011 amounting to 78 billion Euros following in the footsteps of Greece and Ireland. Lisbon has since failed to achieve its budgetary goals.

Constitutional Court ruling

In January 2013, the Constitutional Court initiated a review of the austerity measures assessing its legality. The Court made a ruling that the measures were “discriminatory and unconstitutional,” particularly the government’s intention to cut government employee’s holiday bonuses. Pensioners were affected as well. The government also planned to cut down unemployment benefits and sick leave.

The budget cuts effectively remove the austerity measures put in place to ease the financial crisis. On Friday, the Court chose to cut down four out of nine austerity measures that were originally part of a $6.5 billion 2013 budget. The government now finds itself having to face a shortage of more than 1/5 of the austerity package or almost one and half billion euros.

No option left

The Portuguese government is intent not to ask other European nations for more aid. The government is running out of options and tax increase is out of the question. The last option left for the government is to make significant cuts on specific areas of public service. According to the Prime Minister, the effects of the court’s decision would extend to the citizenry and affect the lives of the Portuguese people and not just the government. He reiterated that the economic recovery of the country is now made even less attainable and much “more problematic” instead.

Crisis

In the meantime, Portugal has been given a stern warning by the European Commission not to steer away from the bailout terms. Should Portugal depart from the provisions of the agreement it would not be eligible to additional assistance.

Meanwhile, the opposition party has claimed that the Prime Minister intended for the budget cuts anyway and is just using the ruling of the Constitutional Court as an excuse. The Constitution is calling on the government officials to resign. They say that the government does not have any credibility having come up with two unconstitutional budget cuts in two years.

New threats to the Eurozone

The current financial crisis in Portugal is posing a threat to other members of the Eurozone who have also been struggling through budget cuts. Based on the estimates of a consultancy based in London, the risks have already increased. The Portuguese financial crisis emerged a few weeks after resolution of a crisis involving the banking industry in Cyprus.